-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QtZirxniHcdVoJq5+24iAWc7knX5EjE8n8qkDtLKnlxCxd0cJZC/Xdg2UEv925ov srLhCSkqjRpkjc7p5ns/5Q== 0000831968-03-000091.txt : 20030813 0000831968-03-000091.hdr.sgml : 20030813 20030813101945 ACCESSION NUMBER: 0000831968-03-000091 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENCE & WORCESTER RAILROAD CO/RI/ CENTRAL INDEX KEY: 0000831968 STANDARD INDUSTRIAL CLASSIFICATION: RAILROADS, LINE-HAUL OPERATING [4011] IRS NUMBER: 050344399 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12761 FILM NUMBER: 03839293 BUSINESS ADDRESS: STREET 1: 75 HAMMOND ST CITY: WORCESTER STATE: MA ZIP: 01610 BUSINESS PHONE: 5087554000 MAIL ADDRESS: STREET 1: PROVIDENCE & WORCESTER RAILROAD CO STREET 2: 75 HAMMOND STREET CITY: WORCESTER STATE: MA ZIP: 01610 10-Q 1 body10q20030630.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 0-16704 PROVIDENCE AND WORCESTER RAILROAD COMPANY ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) ----------------------------------------------------------------------------- Rhode Island 05-0344399 ----------------------------- -------------------------- (State or other jurisdiction of I.R.S. Employer Identification No. incorporation or organization) 75 Hammond Street, Worcester, Massachusetts 01610 ----------------------------- -------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 755-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.) YES X NO ___ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 1, 2003, the registrant has 4,449,595 shares of common stock, par value $.50 per share, outstanding. PROVIDENCE AND WORCESTER RAILROAD COMPANY Index Part I - Financial Information Item 1 - Financial Statements: Balance Sheets - June 30, 2003 (Unaudited) and December 31, 2002.......................................3 Statements of Income (Loss) (Unaudited) - Three and Six Months Ended June 30, 2003 and 2002....................................................4 Statements of Cash Flows (Unaudited) - Six Months Ended June 30, 2003 and 2002.........................5 Notes to Financial Statements (Unaudited)................6-10 Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations.....................11-15 Item 3 -Quantitative and Qualitative Disclosures About Market Risk..........................................15 Item 4 -Controls and Procedures...................................15 Part II - Other Information: Item 4 -Submission of Matters to a Vote of Security Holders.......16 Item 6 -Exhibits and Reports on Form 8-K..........................16 Signatures.............................................................17 EXHIBIT 31-Certification Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002...............................................18-19 EXHIBIT 32- Certification Pursuant To 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002.....................................20 2 Item 1. Financial Statements - ----------------------------- PROVIDENCE AND WORCESTER RAILROAD COMPANY BALANCE SHEETS (Dollars in Thousands Except Per Share Amounts) ASSETS JUNE 30,DECEMBER 31, 2003 2002 (Unaudited) ------- ------- Current Assets: Cash and equivalents ................................ $ 590 $ 2,888 Accounts receivable, net of allowance for doubtful accounts of $125 in 2003 and 2002 ......... 4,197 3,304 Materials and supplies .............................. 1,616 1,634 Prepaid expenses and other .......................... 477 536 Deferred income taxes ............................... 222 126 ------- ------- Total Current Assets ............................... 7,102 8,488 Property and Equipment, net .......................... 70,918 70,057 Land Held for Development ............................ 11,955 11,955 ------- ------- Total Assets ......................................... $89,975 $90,500 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable .................................... $ 2,575 $ 3,017 Accrued expenses .................................... 1,193 964 ------- ------- Total Current Liabilities .......................... 3,768 3,981 ------- ------- Deferred Grant Income ................................ 7,897 7,980 ------- ------- Deferred Income Taxes ................................ 10,109 9,898 ------- ------- Commitments and Contingent Liabilities Shareholders' Equity: Preferred stock, 10% noncumulative, $50 par value; authorized, issued and outstanding 645 shares in 2003 and 2002 ........................ 32 32 Common stock, $.50 par value; authorized 15,000,000 shares; issued and outstanding 4,449,595 shares in 2003 and 4,443,380 shares in 2002 ..................................... 2,225 2,222 Additional paid-in capital .......................... 29,652 29,619 Retained earnings ................................... 36,292 36,768 ------- ------- Total Shareholders' Equity ......................... 68,201 68,641 ------- ------- Total Liabilities and Shareholders' Equity ........... $89,975 $90,500 ======= ======= The accompanying notes are an integral part of the financial statements. 3 PROVIDENCE AND WORCESTER RAILROAD COMPANY STATEMENTS OF INCOME (LOSS) (Unaudited) (Dollars in Thousands Except Per Share Amounts) Three Months Ended Six Months Ended June 30, June 30, 2003 2002 2003 2002 ------- ------- ------- ------- Revenues: Operating Revenues - Freight and Non-Freight .................... $ 6,256 $6,284 $ 11,115 $11,240 Other Income ........................ 109 165 262 496 ------- ------ -------- ------- Total Revenues .................... 6,365 6,449 11,377 11,736 ------- ------ -------- ------- Operating Expenses: Maintenance of way and structures ......................... 810 1,047 1,835 2,141 Maintenance of equipment ............ 558 500 1,148 1,037 Transportation ...................... 1,723 1,642 3,288 3,113 General and administrative .......... 924 927 1,834 1,934 Depreciation ........................ 720 661 1,435 1,323 Taxes, other than income taxes .............................. 566 601 1,148 1,230 Car hire, net ....................... 218 284 400 545 Employee retirement plans ........... 56 57 113 114 Track usage fees .................... 201 1,218 343 1,265 ------- ------ -------- ------- Total Operating Expenses ........... 5,776 6,937 11,544 12,702 ------- ------ -------- ------- Income (Loss) before Income Taxes (Benefit) ..................... 589 (488) (167) (966) Provision for Income Taxes (Benefit) ........................... 200 (170) (50) (335) ------- ------ -------- ------- Net Income (Loss) .................... 389 (318) (117) (631) Preferred Stock Dividends ............ -- -- 3 3 ------- ------ -------- ------- Net Income (Loss) Available to Common Shareholders ................. $ 389 $ (318) $ (120) $ (634) ======= ====== ======== ======= Basic and Diluted Income (Loss) Per Common Share ............. $ .09 $ (.07) $ (.03) $ (.14) ======= ====== ======== ======= The accompanying notes are an integral part of the financial statements. 4 PROVIDENCE AND WORCESTER RAILROAD COMPANY STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in Thousands) Six Months Ended June 30, 2003 2002 ------- ------- Cash flows from operating activities: Net loss ............................................. $ (117) $ (631) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation ........................................ 1,435 1,323 Amortization of deferred grant income ............... (110) (107) Gains from sale of property, equipment and easements, net ..................................... (12) (201) Deferred income taxes ............................... 115 175 Other, net .......................................... 14 8 Increase (decrease) in cash from: Accounts receivable ................................ (1,054) (471) Materials and supplies ............................. 18 42 Prepaid expenses and other ......................... 59 51 Accounts payable and accrued expenses .............. (344) 1,415 ------- ------- Net cash flows from operating activities ............. 4 1,604 ------- ------- Cash flows from Investing Activities: Purchase of property and equipment ................... (2,182) (2,510) Proceeds from sale of properties, equipment and easements ....................................... 30 232 Proceeds from deferred grant income .................. 173 203 ------- ------- Net cash flows used in investing activities .......... (1,979) (2,075) ------- ------- Cash Flows from Financing Activities: Dividends paid ....................................... (359) (357) Issuance of common shares for stock options exercised and employee stock purchases .............. 36 49 ------- ------- Net cash flows used in financing activities .......... (323) (308) ------- ------- Decrease in Cash and Equivalents ..................... (2,298) (779) Cash and Equivalents, Beginning of Period ............ 2,888 3,804 ------- ------- Cash and Equivalents, End of Period .................. $ 590 $ 3,025 ======= ======= Non-cash transactions are described in Note 2. The accompanying notes are an integral part of the financial statements. 5 PROVIDENCE AND WORCESTER RAILROAD COMPANY NOTES TO FINANCIAL STATEMENTS (Unaudited) SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (Dollars in Thousands Except Per Share Amounts) 1. In the opinion of management, the accompanying interim financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position as of June 30, 2003 and the results of operations and cash flows for the interim periods ended June 30, 2003 and 2002. Certain prior period amounts have been reclassified to be consistent with current period presentation. Results for interim periods may not necessarily be indicative of the results to be expected for the year. These interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission. 2. Changes in Shareholders' Equity: Total Additional Share Preferred Common Paid-in Retained holders' Stock Stock Capital Earnings Equity ------- ------- ------- ------- ------- Balance December 31,2002 $ 32 $ 2,222 $29,619 $36,768 $68,641 Issuance of 6,215 common shares for stock options exercised and employee stock purchases .............. 3 33 36 Dividends: Preferred stock, $5.00 per share ........ (3) (3) Common stock, $.08 per share .............. (356) (356) Net loss for the period ................. (117) (117) ----- ------- ------- ------- ------- Balance June 30, 2003 ... $ 32 $ 2,225 $29,652 $36,292 $68,201 ===== ======= ======= ======= ======= During the six months ended June 30, 2002 the Company issued 16,205 shares of its common stock with an aggregate fair market value of $151 to fund its 2001 profit sharing plan contribution. 3. Land Held for Development: Pursuant to permits issued by the United States Department of the Army Corp of Engineers ("ACE") and the Rhode Island Coastal Resources Management Council ("CRMC"), the Company created 33 acres of waterfront land in East Providence, Rhode Island ("South Quay") originally designed to capitalize on the growth of intermodal transportation utilizing rail, water and highway connections. The property has good highway access (1/2 mile from I-195) and direct rail access and is adjacent to a 12 acre site also owned by the Company. The permits for the property allow for construction of a dock along the west face of the South Quay. The ACE permit has been extended to December 31, 2009 and the CRMC permit has been extended to May 11, 2009. 6 4. Other Income: Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 2003 2002 2003 2002 ------ ------ ------ ------ Gains from sale of property, equipment and easements, net ...... $ (1) $ 34 $ 12 $201 Rentals .............. 108 118 243 266 Interest ............. 2 13 7 29 ---- ---- ---- ---- $109 $165 $262 $496 ==== ==== ==== ==== 5. Income (Loss) per Share: Basic income (loss) per common share is computed using the weighted average number of common shares outstanding during each year. Diluted income (loss) per common share reflects the effect of the Company's outstanding convertible preferred stock, options and warrants except where such items would be antidilutive. A reconciliation of weighted average shares used for the basic computation and that used for the diluted computation is as follows: Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Weighted average shares for basic ............ 4,446,718 4,426,798 4,445,251 4,419,183 Dilutive effect of convertible preferred stock, options and warrants ............. 64,558 -- -- -- --------- --------- --------- --------- Weighted average shares for diluted .......... 4,511,276 4,426,798 4,445,251 4,419,183 ========= ========= ========= ========= Options and warrants to purchase 221,665 shares of common stock were outstanding for the three-month period ended June 30, 2003 but were not included in the computation of income per share because their effect would be antidilutive. Preferred stock convertible into 64,500 shares of common stock were outstanding for the six-month period ended June 30, 2003 and for the three and six-month periods ended June 30, 2002. In addition, options and warrants to purchase 228,274 shares of common stock were outstanding for the six-month period ended June 30, 2003 and options and warrants to purchase 227,514 shares of common stock were outstanding for the three and six-month periods ended June 30, 2003. These common stock equivalents were not included in the computation of the diluted loss per share for any of these periods because their effect would be antidilutive. 6. Amtrak Arbitration: The Company was party to an arbitration proceeding with the National Railroad Passenger Corporation ("Amtrak") concerning Amtrak's claim for rate increases with respect to the Company's freight operations over a portion of Amtrak's Northeast Corridor in the states of Rhode Island and Connecticut. The arbitrator issued a decision in June 2002 in which he 7 ordered the Company to pay Amtrak additional track usage fees and siding maintenance costs retroactive to July 9, 1999. The total amount owed by the Company for the period from July 9, 1999 through March 31, 2002 was approximately $1,250, of which $1,150 relates to years prior to 2002. This amount was charged to operations during the three month period ended June 30, 2002. 7. Commitments and Contingent Liabilities: The Company is a defendant in certain lawsuits relating to casualty losses, many of which are covered by insurance subject to a deductible. The Company believes that adequate provision has been made in the financial statements for any expected liabilities which may result from disposition of such lawsuits. On January 29, 2002, the Company received a "Notice of Potential Liability" from the United States Environmental Protection Agency ("EPA") regarding an existing Superfund Site that includes the J.M. Mills Landfill in Cumberland, Rhode Island. EPA sends these "Notice" letters to potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). EPA identified the Company as a PRP based on its status as an owner and/or operator because its railroad property traverses the Superfund Site. Via these Notice letters, EPA makes a demand for payment of past costs (identified in the letter as $762) and future costs associated with the response actions taken to address the contamination at the Site, and requests PRPs to indicate their willingness to participate and resolve their potential liability at the Site. The Company has responded to EPA by stating that it does not believe it has any liability for this Site, but that it is interested in cooperating with EPA to address issues concerning liability at the Site. At this point, two other parties have already committed via a consent order with EPA to pay for the Remedial Investigation/Feasibility Study ("RI/FS") phase of the clean-up at the Site, which will take approximately two or more years to complete. After that, EPA will likely seek to negotiate the cost of the Remedial Design and implementation of the remedy at the Site with the PRPs it has identified via these Notice Letters (which presently includes over sixty parties, and is likely to increase after EPA completes its investigation of the identity of PRPs). The Company believes that none of its activities caused contamination at the Site, and will contest this claim by EPA. In connection with the EPA claim described above, the two parties who have committed to conduct the RI/FS at the Site filed a complaint in the U.S. District Court of Rhode Island against the Company, in an action entitled CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al (consolidated with Unilever Bestfoods v. American Steel & Aluminum Corp. et al), C.A. No. 01-496/L, on December 18, 2002. The Company is one of about sixty parties named thus far by Plaintiffs, who seek to recover response costs incurred in investigating and responding to the releases of hazardous substances at the Site. Plaintiffs allege that the Company is liable under 42 U.S.C. section 961(a)(3) of CERCLA as an "arranger" or "generator" of waste that ended up at the Site. The Company has entered into a Generator Cooperation Agreement with other defendants to allocate costs in responding to this suit, and to share technical costs and information in evaluating the Plaintiffs' claims. The Company does not believe it generated any waste that ended up at this Site, or that its activities caused contamination at the Site. The Company will contest this suit. 8. Dividends: On July 30, 2003, the Company declared a dividend of $.04 per share on its outstanding Common Stock payable August 21, 2003 to shareholders of record August 7, 2003. 8 9. Stock Based Compensation: The Company accounts for stock-based compensation awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Had the Company used the fair value method to value compensation, as set forth in Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net income (loss) and net income (loss) per share would have been reported as follows: Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Net income (loss) available to common shareholders: As reported ................ $ 389 $ (318) $ (120) $ (634) Less impact of stock option expense ............ 12 8 24 17 ------ ------- ------- ------- Pro forma .................. $ 377 $ (326) $ (144) $ (651) ====== ======= ======= ======= Basic income (loss) per share: As reported ................ $ .09 $ (.07) $ (.03) $ (.14) Less impact of stock option expense ............ .01 -- -- -- ------ ------- ------- ------- Pro forma .................. $ .08 $ (.07) $ (.03) $ (.14) ====== ======= ======= ======= Diluted income (loss) per share: As reported ................ $ .09 $ (.07) $ (.03) $ (.14) Less impact of stock option expense ............ .01 -- -- -- ------ ------- ------- ------- Pro forma .................. $ .08 $ (.07) $ (.03) $ (.14) ====== ======= ======= ======= 10. Recently Issued Financial Accounting Standards: In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated costs. Under this statement, an entity must recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred or in a period in which a reasonable estimate of fair value may be made. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company adopted this Statement on January 1, 2003 and there was no effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". This statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to 9 make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective for financial statements issued on or after May 15, 2002. The Company adopted this Statement on January 1, 2003 and there was no effect on the Company's financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted this Statement on January 1, 2003 and there was no effect on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company does not currently intend to adopt the fair value based method of measuring compensation associated with stock awards and grants. As a consequence of continuing to utilize the intrinsic value method of measuring such compensation, the Company has provided additional disclosures in its quarterly financial statements which reflect the impact on net income and earnings per share on a pro forma basis as if it had applied the fair value method to stock-based employee compensation. 10 PROVIDENCE AND WORCESTER RAILROAD COMPANY ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF - ---------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- The statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations ("MDA") which are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Company's present expectations or beliefs concerning future events. The Company cautions, however, that actual results could differ materially from those indicated in MDA. Critical Accounting Policies - ---------------------------- The Securities and Exchange Commission (SEC) recently issued guidance for the disclosure of "critical accounting policies." The SEC defines such policies as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The Company's significant accounting policies are described in Note 1 of the Notes to Financial Statements in its Annual Report on Form 10-K. None of these significant accounting policies requires management to make difficult, subjective or complex judgments or estimates, and therefore none meets the SEC definition of "critical." Results of Operations - --------------------- The following table sets forth the Company's operating revenues by category in dollars and as a percentage of operating revenues: Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ----------------------------- 2003 2002 2003 2002 ------------- ------------- -------------- -------------- (In thousands, except percentages) Freight Revenues: Conventional carloads ...... $5,308 84.8 $5,375 85.5 $9,181 82.6 $9,413 83.7% Containers ..... 769 12.3 630 10.0 1,418 12.8 1,234 11.0 Non-Freight Operating Revenues: Transportation services ...... 106 1.7 107 1.7 314 2.8 346 3.1 Other .......... 73 1.2 172 2.8 202 1.8 247 2.2 ------ ----- ------ ----- ------- ----- ------- ----- Total ........ $6,256 100.0 $6,284 100.0 $11,115 100.0 $11,240 100.0% ====== ===== ====== ===== ======= ===== ======= ===== 11 The following table sets forth a comparison of the Company's operating expenses expressed in dollars and as a percentage of operating revenues: Three Months Ended June 30, Six Months Ended June 30, ---------------------------- ----------------------------- 2003 2002 2003 2002 ------------- ------------- -------------- -------------- (In thousands, except percentages) Salaries, wages, payroll taxes and employee benefits $3,233 51.7 $3,258 51.9 $6,522 58.7 $6,506 57.9% Casualties and insurance ...... 336 5.4 290 4.6 544 4.9 481 4.3 Depreciation .... 720 11.5 661 10.5 1,435 12.9 1,323 11.8 Diesel fuel ..... 319 5.1 279 4.4 557 5.0 506 4.5 Car hire, net ... 218 3.5 284 4.5 400 3.6 545 4.8 Purchased services, including legal and professional fees ........... 332 5.3 574 9.1 594 5.4 949 8.4 Repair and maintenance of equipment ...... 192 3.1 212 3.4 440 4.0 409 3.6 Track and signal materials ...... 782 12.5 665 10.6 1,071 9.6 1,093 9.7 Track usage fees 201 3.2 1,218 19.4 343 3.1 1,265 11.3 Other materials and supplies ... 302 4.8 170 2.7 579 5.2 413 3.7 Other ........... 403 6.4 385 6.1 825 7.4 779 6.9 ------ ----- ------ ----- ------- ----- ------- ----- Total .......... 7,038 112.5 7,996 127.2 13,310 119.8 14,269 126.9 Less capitalized and recovered costs ......... 1,262 20.2 1,059 16.8 1,766 15.9 1,567 13.9 ------ ----- ------ ----- ------- ----- ------- ----- Total ........ $5,776 92.3 $6,937 110.4 $11,544 103.9 $12,702 113.0% ====== ===== ====== ===== ======= ===== ======= ===== Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002 Amtrak Arbitration: The Company was party to an arbitration proceeding with the National Railroad Passenger Corporation ("Amtrak") concerning Amtrak's claim for rate increases with respect to the Company's freight operations over a portion of Amtrak's Northeast Corridor in the states of Rhode Island and Connecticut. The arbitrator issued a decision in June 2002 in which he ordered the Company to pay Amtrak additional track usage fees and siding maintenance costs retroactive to July 9, 1999. The statement of loss for the six months ended June 30, 2002 includes $940,000 of track usage fees and $210,000 of siding maintenance costs which relate to years prior to 2002. In prior years it was the Company's practice to net its track usage fees against conventional freight revenues. Because of the increased significance of track usage fees upon the Company's operations and in order to conform to common industry practice the Company began reporting track usage fees as an operating expense in its financial statements for the year ended December 31, 2002. Operating revenues and expenses for the six months ended June 30, 2002 have been reclassified to conform to the current presentation. Operating Revenues: Operating revenues decreased $125,000, or 1.1%, to $11.1 million in the six months ended June 30, 2003 from $11.2 million in 2002. This decrease is the net result of a $232,000 (2.5%) decrease in conventional freight revenues and a $77,000 (13.0%) decrease in non-freight operating revenues partially offset by a $184,000 (14.9%) increase in container freight revenues. 12 The decrease in conventional freight revenues is the result of a 5.7% decrease in conventional carloadings, partially offset by a 3.5% increase in the average revenue received per conventional carloading. The Company's conventional carloadings decreased by 831 to 13,699 in the first six months of 2003 from 14,530 in 2002. The decline in conventional traffic is largely attributable to a decrease in the volume of construction aggregates due to the effects of extreme winter weather conditions during the first quarter of the year and other factors. The decrease in construction aggregate traffic, a lower rated commodity, has had the effect of increasing the traffic mix toward higher rated commodities, thereby resulting in an increase in the average revenue received per carloading. The increase in container freight revenues is the result of a 6.2% increase in traffic volume and an 8.1% increase in the average revenue received per container. Intermodal containers handled during the six-month period increased by 1,895 to 32,255 in 2003 from 30,360 in 2002. The increase in the average revenue received per container is largely the result of a contractual rate increase. The decrease in non-freight operating revenues for the six-month period is the result of decreased maintenance department billings as well as decreased billings for demurrage charges and secondary switching and weighing services. Revenues of this type typically vary from period to period depending upon the needs of freight customers and other outside parties. Other Income: Other income decreased by $234,000 to $262,000 in the first six months of 2003 from $496,000 in 2002. This decrease is largely due to lower gains from the sale of property, equipment and easements. Income of this nature can vary significantly from period to period. Operating Expenses: Operating expenses for the six-month period decreased by $1.2 million, to $11.5 in 2003 from $12.7 million in 2002. When the prior year impact of the Amtrak arbitration decision on the first six months of 2002 is excluded, operating expenses remained virtually unchanged between periods. Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 Operating Revenues: Operating revenues decreased by just $28,000 (.4%) in the second quarter of 2003 from the second quarter of 2002. This decrease is the net result of a $67,000 (1.2%) decrease in conventional freight revenues and a $100,000 (35.8%) decrease in non-freight operating revenues substantially offset by a $139,000 (22.1%) increase in container freight revenues. The decrease in conventional freight revenues is the result of a 2.5% decrease in conventional carloadings, partially offset by a 1.3% increase in the average revenue received per conventional carloading. The Company's conventional carloadings decreased by 228 to 9,016 in the second quarter of 2003 from 9,244 in 2002. The decline in conventional traffic volume during the quarter is largely attributable to lower demand for construction aggregates resulting in a reduction in the carloadings of this low rated commodity handled during the quarter. This decrease also accounts for the increase in the average revenue received per conventional carloading during the quarter. The increase in container freight revenues is the result of a 10.5% increase in traffic volume and a 10.5% increase in the average revenue received per 13 container. Intermodal containers handled during the quarter increased by 1,644 to 17,299 in 2003 from 15,655 in 2002. The increase in the average revenue received per container is largely the result of a contractual rate increase. The decrease in non-freight operating revenues for the quarter results from decreased maintenance department billings. Other income decreased by $56,000 to $109,000 in the second quarter of 2003 from $165,000 in 2002. The principal cause of this decrease was the absence of any gains from the sale of property, equipment and easements during the quarter. Operating Expenses: Operating expenses for the second quarter decreased by $1.1 million to $5.8 million in 2003 from $6.9 million in 2002. This decrease is attributable to the impact of the Amtrak arbitration decision in the second quarter of 2002. Liquidity and Capital Resources - ------------------------------- During the first six months of 2003 the Company generated just $4,000 of cash from its operations. Total cash and equivalents decreased by $2.3 million for the period. The principal utilization of cash during the period, other than for operations, was for expenditures for property and equipment, of which $1.3 million was for additions and improvements to track structure, and for the payment of dividends. In management's opinion, cash generated from operations during the remainder of 2003 will be sufficient to enable the Company to meet its operating expenses and capital expenditure and dividend requirements. Seasonality - ----------- Historically, the Company's operating revenues are lowest for the first quarter due to the absence of construction aggregate shipments during a portion of this period and to winter weather conditions. Recent Accounting Pronouncements - -------------------------------- In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". This statement establishes accounting standards for recognition and measurement of a liability for an asset retirement obligation and the associated costs. Under this statement, an entity must recognize the fair value of a liability for an asset retirement obligation in the period in which it is incurred or in a period in which a reasonable estimate of fair value may be made. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company adopted this statement on January 1, 2003 and there was no effect on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an amendment of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". This statement amends FASB Statement No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective for financial statements issued on or after May 15, 2002. The Company 14 adopted this statement on January 1, 2003 and there was no effect on the Company's financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company adopted this Statement on January 1, 2003 and there was no effect on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The Company does not currently intend to adopt the fair value based method of measuring compensation associated with stock awards and grants. As a consequence of continuing to utilize the intrinsic value method of measuring such compensation, the Company has provided additional disclosures in its quarterly financial statements which reflect the impact on net income and earnings per share on a pro forma basis as if it had applied the fair value method to stock-based employee compensation. Item 3. Quantitative and Qualitative Disclosures About Market Risk - ------------------------------------------------------------------ Cash and Equivalents As of June 30, 2003, the Company is exposed to market risks which primarily include changes in U.S. interest rates. The Company invests cash balances in excess of operating requirements in short-term securities, generally with maturities of 90 days or less. In addition, the Company's revolving line of credit agreement provides for borrowings which bear interest at variable rates based on either prime rate or one and one half percent over either the one or three month London Interbank Offered Rates. The Company had no borrowings outstanding pursuant to the revolving line of credit agreement at June 30, 2003. The Company believes that the effect, if any, of reasonably possible near-term changes in interest rates on the Company's financial position, results of operations, and cash flows should not be material. Item 4. Controls and Procedures - ------------------------------- As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Treasurer. Based upon that evaluation, the Chief Executive Officer and the Treasurer concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There was no significant change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to affect, the Company's internal control over financial reporting. 15 PART II - Other Information - --------------------------- Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The Annual Meeting of Stockholders was held on April 30, 2003. Of the 4,443,755 shares of common stock entitled to vote, 3,867,911 shares were present, in person or by proxy. Of the 645 shares of preferred stock entitled to vote, 508 shares were present, in person or by proxy. All directors of the Company are elected on an annual basis and the following were so elected at this Annual Meeting: Richard W. Anderson, Robert H. Eder and Merrill W. Sherman were elected Common Stock Directors. Mr. Anderson received 3,762,872 affirmative votes and 105,039 votes withheld, Mr. Eder received 3,378,876 affirmative votes and 489,035 votes withheld and Ms. Sherman received 3,761,172 affirmative votes and 106,739 votes withheld of common shares. Frank W. Barrett, John H. Cronin, J. Joseph Garrahy, Orville R. Harrold, John J. Healy and Charles M. McCollam, Jr. were elected Preferred Stock Directors. Each director received 508 affirmative votes and no votes withheld of preferred shares. A resolution was presented for the appointment of Deloitte & Touche LLP as independent auditors of the accounts of the Company for 2003. The resolution received 3,771,311 affirmative votes and 51,732 negative votes of common shares with 44,868 common shares abstaining. The resolution received 508 affirmative votes and no negative votes of preferred shares. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (b) No reports on Form 8-K were filed during the quarter ended June 30, 2003. 16 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROVIDENCE AND WORCESTER RAILROAD COMPANY By: /s/ Robert H. Eder ------------------------------------- Robert H. Eder, Chairman of the Board And Chief Executive Officer By: /s/ Robert J. Easton ------------------------------------- Robert J. Easton, Treasurer and Chief Financial Officer DATED: August 13, 2003 17 EXHIBIT 31.1 Providence and Worcester Railroad Company Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Robert H. Eder, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Providence and Worcester Railroad Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on our evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: August 13, 2003 By: /s/ Robert H. Eder ------------------------------------- Robert H. Eder, Chairman of the Board And Chief Executive Officer 18 EXHIBIT 31.2 Providence and Worcester Railroad Company Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Robert J. Easton certify that: 1. I have reviewed this quarterly report on Form 10-Q of Providence and Worcester Railroad Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on our evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: August 13, 2003 By: /s/ Robert J. Easton ------------------------------------- Robert J. Easton Treasurer and Principal Financial Officer 19 EXHIBIT 32 PROVIDENCE AND WORCESTER RAILROAD COMPANY CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Providence and Worcester Railroad Company ("the Company") on form 10-Q for the quarterly period ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Robert H. Eder, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert H. Eder ------------------------------------- Robert H. Eder, Chairman of the Board and Chief Executive Officer August 13, 2003 In connection with the Quarterly Report of Providence and Worcester Railroad Company ("the Company") on form 10-Q for the quarterly period ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), I, Robert J. Easton, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert J. Easton ------------------------------------- Robert J. Easton, Treasurer and Principal Financial Officer August 13, 2003 -----END PRIVACY-ENHANCED MESSAGE-----